Wheaton Precious Metals (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”WPM.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) stock price has been on a rise over the past three months thanks to the resolution of its tax dispute with the Canadian Revenue Agency (CRA).
The settlement between the two parties turned out to be favourable for Wheaton as the income generated by its wholly-owned foreign subsidiary, Wheaton International, will not be taxed in Canada.
[stock_market_widget type=”chart” template=”basic” color=”blue” assets=”WPM.TO” range=”1mo” interval=”1d” axes=”true” cursor=”true” api=”yf”]Additionally, the company believes that it won’t have to pay any retrospective tax for the 2005 to 2010 taxation years after accounting for non-capital losses under the terms of the settlement. This development has given investor confidence a nice boost of late, but will Wheaton be able to sustain its recent rally by improving its silver streaming profile?
Wheaton’s Stock Price Hit Hard in 2018
Wheaton Precious Metals is yet to release its fourth-quarter and full-year report for fiscal 2018, which will be released on March 20, but the market is already prepared for a massive top and bottom line decline. The company’s revenue is expected to drop nearly 21% in the fourth quarter, which will push its earnings per share to $0.06 from $0.19 in the prior-year period.
Wheaton’s performance is expected to take a hit on account of a decline in sales of silver last year, as well as weak gold and silver prices. For instance, Wheaton’s silver ounces sold were down 13% during the third quarter while production took a bigger nosedive of nearly 25%.
As well, the sale price of silver was down 12.3% year over year during the quarter. While gold sales had increased by 8.1% and outpaced the 6.7% jump in the production, gold prices were down 5.7% year over year during the quarter.
The lower prices and an increase in cash costs led to a decline in the company’s gold and silver operating margins last quarter, which is why its adjusted net earnings nearly halved year over year. In fact, the addition of a palladium stream from Stillwater wasn’t enough to move the needle for the company and its financials dived.
Wheaton, however, had confirmed that it is all set to exceed its 2018 production guidance of 22.5 million ounces of silver, 355,000 ounces of gold, and 10,400 ounces of palladium. For comparison, the company had produced 28 million ounces of silver and 340,000 ounces of gold in 2017, showing there is no immediate production growth.
Silver Production the Key to Wheaton’s Success
Wheaton’s silver production profile has been crippled by the expiration of a series of streaming agreements. The company’s streaming agreement with the Lagunas Norte, Veladero, and Pierina mines ceased to exist from March 2018, while it had to restructure its silver purchase agreement with the San Dimas mine after the latter’s operator was acquired by First Majestic.
All these headwinds have hurt Wheaton financially as it relies on silver for 45% of its total revenue. The company will need to get new streaming agreements in order to boost production.
Investors will have to keep a close watch on the company’s silver streaming guidance in 2019 when it releases results. Any bad news on that front could cause disappointment and bring an end to Wheaton Precious Metals’ recent rally.
